By now most of school business officials are aware of the new auditing standards (SAS #104 to #111) that take effect for the June 30, 2008 audit. We also want to make certain that everyone is aware of the new auditor communication standard (SAS #114) that will also take effect on that date. This new communication standard (SAS #114) replaces the previous communication required by SAS #61.
A few districts have received the letter required under SAS #61 - “Communication with Audit Committees” - and will notice little change. Since most districts do not have formal audit committees, they have not previously received this letter. This changes for the June 30, 2008 audits. SAS #114 requires formal communication with all governing bodies both before and after the audit.
Here is a brief outline of what is required to be communicated to the board:
Before the audit begins:
- The auditor’s responsibility under Generally Accepted Auditing Standards
- An overview of the planned scope and timing of the audit
- An inquiry (conversation) with the board as to any information the board feels is relevant to the audit
At the completion of the audit:
A formal letter outlining the following:
- The auditor’s views about significant accounting practices
- Any difficulties encountered during the audit
- Any uncorrected misstatements
- Any disagreements with management
- Any material audit adjustments
- Representations the auditor is requesting from management
- Any consultations by management with other accountants
- Any significant issues arising from the audit that were discussed with management
Obviously the intent of this new standard is to increase the level of communication between the auditor and the school board. While most of the new disclosures will only rarely have a significant impact on districts, we do want to call your attention to the requirement to share the list of uncorrected misstatements (often referred to as the passed adjustment list or PAJE list) with the board.
This list includes possible adjustments that management concluded were not material to the financial statements and the auditor concluded were not necessary to be recorded in order to issue an opinion on the financial statements. Prior to this year, this was basically a document shared between the auditor and district accounting personnel (everyone having a basic level of accounting knowledge).
With this information now going to the school board and as part of an official communication, we would encourage you to review the list of PAJE’s from last year’s audit and give careful consideration to eliminating items for June 30, 2008 in order to avoid unnecessary questions and concerns by the board or community.